Mexico’s central bank Governor Augustin Carstens or Christine Lagarde, France’s finance minister will have the responsibility of maintaining focus on critical issues such as Europe’s debt troubles and the fragile global economic recovery amidst the IMF’s tainted image in the wake of Dominique Strauss-Kahn’s resignation last month.
Strauss-Kahn resigned from his post as managing director after being charged in a New York court for sexual assault on a hotel maid early May. But with the Strauss-Kahn story gradually dying out, and focus returning to Greece’s woes, the nomination of the two officials has raised another critical question – should a non-European take over the fund?
For decades, there has been an unwritten rule that a European should lead the IMF, the same way an American heads the World Bank. But with countries like China and India emerging as economic heavyweights, and overtaking economies like France, the relevance of the rule that a European should always head the IMF has in the recent past come under heavy scrutiny.
Speaking to Newsquote, a global online platform for journalists, Jo Marie Griesgraber, the Executive Director, New Rules for Global Finance Coalition, Economic Policy Institute, in Washington D.C, explained why it is difficult to change the IMF-chief-must-be-European mentality.
“To make changes also requires a super majority for major changes, and a so-called consensus in the Board. The distribution of votes is skewed to the WWII victors, the US and “old Europe” and no government willingly gives up its votes,” she said.
Griesgraber was in other words pointing to the sensitive issue of the quota system and voting power at the IMF. The amount of quota determines a country’s voting power. The IMF looks at a raft of economic indicators such as the Gross Domestic Product, international reserves, among others, while allocating quotas.
The more developed a country is, the higher its quota system. While economies such as China, Brazil, India and Russia are now part of the IMF’s grand club of top ten members – and thus have a strong voice – poor countries still remain behind, and their voting power hardly holds any weight.
The IMF has promised to raise the quota system, and thus the voting power, for Brazil, Russia, India, and China by 2013. But that of the poor countries, which cannot meet such requirements like having an annual per capita income above $1,135, among others, has been stayed.
Nevertheless, Peter Chowla, a policy and advocacy officer at the Bretton Woods Project team in the UK, says one should not be overly optimistic about what the IMF promises. Also speaking to Newsquote, he argued:
“The main problem around nationality is that the European governments keep breaking their promises to have a merit-based process. They care only about the nationality of the candidate.
This is why European governments backed Lagarde even before she formally launched her campaign and before nominations were in.”
On the issue of reforms, Chowla explained that “European governments have been clinging on to their outdated privileges for years. Reform is hard because European governments have not yet realized that giving up power in the IMF is actually in their interests because it would create a more legitimate, accountable and democratic institution.”
Yet, poor countries like those in Africa have such deep problems to deal with at the moment that engaging in debates like the voting system at the IMF would simply be cynical. Not to mention their different demands and needs.
Griesgraber put it clearly: “The developing countries do not necessarily have common agendas; just think of South Africa compared to much of the rest of Sub-Saharan Africa. To the extent low income countries are dependent on foreign assistance, they are not going to antagonise the governments that provide Official Development Assistance.”
In any case, Europe remains one of Africa’s biggest export markets. For now, attention shifts to what Lagarde or Carstens will bring to the table.
Either way, saving Europe from its debt problems is expected to be high on both candidates’ agenda, while pushing for better reforms in poor countries – like applying pressure on governments to stick to the set economic programmes - is something for another day.